Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

A Member of the Law Professor Blogs Network

Wednesday, September 10, 2014

Judge Gives Nine Year Sentence for Insider Trading


On Monday, Judge Paul Gardephe handed down one of the longest prison sentences for insider trading.  Mathew Martoma, the portfolio manager who worked for an affiliate of Steve Cohen’s SAC Capital Advisors hedge fund firm, was found guilty of obtaining material non-public information about the development of an Alzheimer’s drug from a doctor and trading the information to make more than $200 million in profits.  The judge sentenced Martoma to nine years and ordered that he pay back the $9 million he received in bonuses for himself. 

The evidence accrued against Martoma was large, including the testimony of an 81-year-old doctor.  Although some lawyers and reporters were baffled by Martoma’s decision not to settle the case, some suggest his ability to obtain a good settlement was hindered after it was discovered he had been expelled from Harvard Law School for doctoring his transcript to make up better grades. 

See Nathan Vardi, Mathew Martoma Sentenced to Nine Years For Insider Trading, Forbes, Sept. 8, 2014.

September 10, 2014 in Estate Planning - Generally, Malpractice, New Cases, Professional Responsibility | Permalink | Comments (0) | TrackBack (0)

Sunday, September 7, 2014

The Ethical Side of Asset Protection Planning

Asset protection

Many clients are concerned with safeguarding their wealth during their lifetime, also known as asset protection planning (APP).  APP goes beyond traditional estate planning, and focuses on minimizing estate and inheritance taxes, avoiding probate and providing for heirs.  Accordingly, estate planners are expected to have knowledge of asset protection stratagems, including the use of asset protection trusts (APTs).  Many practitioners avoid APTs, fearing this is unethical.  However, that fear unfounded as it is usually based on lack of knowledge in the area.

Attorneys must examine cases and ethics opinions of the state in which they practice as individual states take slightly different approaches to what constitutes ethical representation.  All states have statutory provisions exempting certain assets from creditors’ claims, and more than 15 states have enacted domestic asset protection trust (DAPT) legislation.  This legislation supports the position that APP is ethical.  Even though APP is ethical, it can be practiced unethically.

The key to an ethical practice is to know your client and state laws.  Once you have determined whether a client may be represented in an APP matter, you must avoid communication failures, especially allowing unreasonable client expectations. 

See Patricia Donlevy-Rosen, Ethical Considerations in Asset Protection Planning, Wealth Management, Sept. 3, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

September 7, 2014 in Estate Planning - Generally, Estate Tax, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 2, 2014

Article on Discretionary Distributions

Leslie kiefer aman

Leslie Kiefer Amann (Sentinel Trust Company LBA) recently published an article entitled, Discretionary Distributions: Old Rules, New Perspectives, Estate Planning and Community Property Law Journal, Vol. 6 No. 2, 181-220 (2014).  Provided below is a portion of the article’s introduction:

The “discretion” exercised by a trustee includes all aspects of administration, but making payments out of a trust—the discretionary distribution—often seems to be the greatest challenge.  This material was originally created for the Texas Bankers Association Annual Graduate Trust School.  Over a period of nearly fifteen years, it has been gradually expanded to include illustrations and materials from other states; however, the primary focus remains on the information needed to make excellent fiduciary decisions and draft clear fiduciary instructions under Texas law.

Although many of the citations are to Texas law, some principles are universally applied, and regarding those, this article will draw on the case law of other states and sources. 

September 2, 2014 in Articles, Estate Administration, Estate Planning - Generally, Professional Responsibility | Permalink | Comments (0) | TrackBack (0)

Saturday, August 30, 2014

Article on Fiduciary Selection

BeyerI recently published an article entitled, A Guide to Fiduciary Selection, Estate Planning Developments for Texas Professionals (July 2014).  Provided below is the abstract from SSRN:

Your clients must exercise great care in selecting fiduciaries such as executors, trustees, and agents. These decisions may affect the client and the client’s family members for many years. Decisions regarding the appropriate persons to select are, naturally, for your clients to make. However, you have a duty to explain to your clients the factors they should consider before making designations in wills, trusts and powers of attorney. This article focuses on these considerations.

The article begins with a discussion of legal criteria based on the law of Texas. 

The remainder of the article has general application and discusses the factors from a practical standpoint which a client should consider as well as the pros and cons of using a corporate fiduciary and of appointing co-fiduciaries.

August 30, 2014 in Articles, Estate Planning - Generally, Professional Responsibility, Trusts, Wills | Permalink | Comments (1) | TrackBack (0)

Saturday, August 23, 2014

Article on the Distribution of Funds to Beneficiaries of a Commingled Trust

TrustChristian Chamorro-Courtland (Zayed University) recently published an article entitled, Demystifying the Lowest Intermediate Balance Rule: The Legal Principles Governing the Distribution of Funds to Beneficiaries of a Commingled Trust Account for which a Shortfall Exists (July 16, 2014), Forthcoming, Banking & Finance Law Review. Provided below is the abstract from SSRN:

There has been much legal uncertainty in Canada regarding the best method for distributing commingled trust funds to beneficiaries where a shortfall occurred due to fraudulent misappropriation committed by the trustee or as a result of other operational risks. The case law in this area has been riddled with legal uncertainty. This article analyzes a series of dicta from the Ontario courts that have considered the relevant rules for the distribution of the remaining trust funds in these situations, with a focus on the Ontario Superior Court decision in Boughner et al. v. Greyhawk Equity Partners Limited Partnership (Millenium) et al. (2012). It observes that the judges have continuously muddled up the ‘Basic Pro Rata Approach’ and the ‘Lowest Intermediate Balance Rule’ because there has been a misunderstanding of how these rules operate in practice. Furthermore, it presents a logical method for insolvency administrators and the courts to determine which rule to apply in these situations. It argues that the intention of the beneficiaries should be the main factor determining the method of distribution to be applied.

August 23, 2014 in Articles, Estate Planning - Generally, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Friday, August 22, 2014

Booklet Series on Managing Someone Else’s Money

CFPB_LogoThe Consumer Financial Protection Bureau has released a series of informative guides entitled, Managing Someone Else’s Money. Here is a description of the series from the CFPB website:

Millions of Americans are managing money or property for a loved one who is unable to pay bills or make financial decisions. This can be very overwhelming. But, it’s also a great opportunity to help someone you care about, and protect them from scams and fraud.

We are releasing four easy-to-understand booklets to help financial caregivers. The Managing Someone Else’s Money guides are for agents under powers of attorney, court-appointed guardians, trustees, and government fiduciaries (Social Security representative payees and VA fiduciaries.)

The guides help you to be a financial caregiver in three ways:

  • They walk you through your duties.
  • They tell you how to watch out for scams and financial exploitation, and what to do if your loved one is a victim.
  • They tell you where you can go for help.

August 22, 2014 in Books, Disability Planning - Property Management, Estate Planning - Generally, Guardianship, Non-Probate Assets, Professional Responsibility, Resource Links, Trusts | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 20, 2014

Morgan Stanley Liable to Banamex

Morgan stanley

Citigroup Inc’s Bnamex unit alleged that a unit of Morgan Stanley permitted funds from a family’s trust account to be used to repay third-party loans without its authorization.  A Financial Industry Regulation Authority (FINRA) arbitration panel found Morgan Stanley liable for negligence and ordered the firm pays $4.5 million to Banamex.

The trust at issue was created in 2007 with proceeds from the sale of property that a group of adult siblings and their mother inherited.  Banamex and the trust beneficiaries procured a broker at Morgan Stanley to manage their accounts the same year.  The accounts were set up in such a way that prevented the assets from being used as guarantees to pay off third-party loans taken by another family member’s account.

See Suzanne Barlyn, Morgan Stanley Must Pay $4.5 Million to Banamex: Panel, Reuters, Aug. 18, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

August 20, 2014 in Current Affairs, Estate Planning - Generally, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Widow of Former Navy Seal Sues Estate Planning Attorney

Gavel3Taya Kyle, the widow of former Navy Seal and American Sniper author, Chris Kyle, is suing her estate planning attorney. The suit was filed in Dallas County last week. Kyle claims that her attorney and trustee of her family trust, Christopher Kirkpatrick, acted negligently with regards to the services he provided her and her late husband. Kyle also alleges that Kirkpatrick failed to inform her that he had a conflict of interest, which was an impediment to his representation of her and her husband. The estate of Chris Kyle is also a plaintiff in the lawsuit.

See David Lee, ‘American Sniper’s’ Widow Sues Her Attorney, Courthouse News Service, Aug. 18, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

August 20, 2014 in Estate Planning - Generally, New Cases, Non-Probate Assets, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 19, 2014

New Case: In re Indenture of Trust Dated January 13, 1964


Improper assignment is not a basis for trustee liability.  A trust beneficiary assigned his interest in the trust for the benefit of other beneficiaries, even though the trust terms contained a valid spendthrift provision prohibiting voluntary and involuntary alienation, in exchange for a cash payment from the trust.  The trustee made distributions in accord with the assignment. Twelve years later, after the trust’s termination, the assignor brought an accounting action. In affirming summary judgment for the trustee and another beneficiary, the intermediate Arizona appellate court held that the trustee was not liable for payments made in accord with an invalid assignment, that the assignor was not entitled to an accounting because he was no longer a beneficiary, and that in any event the assignor’s action was barred by laches.  In re Indenture of Trust Dated January 13, 1964, 326 P.3d 307 (Ariz. Ct. App. 2014).

Special thanks to William LaPiana (Professor of Law, New York Law School) for bringing this case to my attention.

August 19, 2014 in Estate Planning - Generally, New Cases, Professional Responsibility, Trusts | Permalink | Comments (0) | TrackBack (0)

Thursday, August 14, 2014

Preventing Financial Abuse of Elders

Old people holding hands

Kiplinger’s has labeled financial abuse of the elderly “the crime of the 21st Century.”  This should come as no surprise, as a new study in the Journal of General Internal Medicine reported that as many as one in twenty older adults in America may be victims. 

The question then becomes what can be done to curb this growing ignominy? 

Fortunately, there are new efforts aimed at getting lawyers to spot and report financial fraud targeting older Americans.  The nonprofit Investor Protection Trust and its sister organization, the Investor Protection Institute have teamed up with the American Bar Association (ABA) to launch the Elder Investment Fraud and Financial Exploitation (EIFFE) Prevention Program Legal. 

The EIFFE Program has potential to succeed, as lawyers can be among the first to spot problems.  “We knew that a lot of attorneys—not just elder law attorneys—are helping seniors with estate plans and wills and powers of attorney, so they would be in a position to spot someone who could potentially be at risk of financial exploitation.”  Nine of ten practicing attorneys said they are willing to participate in a program to learn about detecting, preventing and redressing elder investment fraud and financial exploitation.

See Richard Eisenberg, Promising Effort to Curb Elder Financial Abuse, Forbes, Aug. 13, 2014. 

August 14, 2014 in Elder Law, Estate Planning - Generally, Professional Responsibility | Permalink | Comments (0) | TrackBack (0)